We’re back with Kevin Virgil from Columbus Street Ventures talking about opportunities in Libya.
Kevin hopped on a plane the minute Gaddafi was ousted. Today he’s seeking out opportunities on the ground, and we’re glad to be getting the benefit of his experience and first-hand knowledge.
Mark: Kevin, I have no doubt that Africa should be the richest continent on earth. A combination of factors have made that a highly unlikely, at least in my lifetime, possibility. However, we do think you can play the individual country stories successfully, in the short to mid-term, especially if your risk tolerance is high and you get your boots on the ground.
Libya is exciting, but as you pointed out yesterday, politics is still a big issue. Instability is perhaps an understatement?
Kevin: Well certainly the initial post-revolution euphoria has passed, and people have now realized the magnitude of the rebuilding that must be done. For example, this week the NTC postponed the scheduled parliamentary elections you mentioned in your intro yesterday by two weeks, due to logistical and managerial concerns. Many foreign multi-nationals and investors have been waiting on the sidelines and have identified the elections as a key criteria for their market entry strategy. The prolonging of uncertainty is not something that they, or the new government, want to see.
Mark: Markets hate uncertainty. We’re seeing that a bit in Mongolia right now.
Assuming they get through this turmoil, the mineral wealth, in particular oil, is certainly the most obvious low-hanging fruit to be plucked. What’s needed to bring that back up to speed?
Kevin: Well, the vast majority of current opportunities are in energy exploration and production. Most of the international oil companies (IOCs) have returned, and we are seeing a lot of proposals for suppliers of key equipment, logistics, and personnel. However, many of the larger oilfield services and support companies have yet to return to Libya in a significant capacity. Therefore, if you are well-connected locally and have some capital to deploy it is now possible to set up a successful oilfield services company in a few weeks.
Mark: Funny that you mention that. One of our readers that I recently met in Thailand is involved in that business. He’s talking about setting up shop in Libya, and Chris and I are keen to back him if he decides to go for it.
Kevin: That’s a great business if you know what you’re doing. Also construction – especially in utilities and infrastructure – is another area where we see significant demand on the horizon. The NTC is not yet in a position to release construction tenders on a large scale, but we are already seeing a trickle and expect that to ramp up later this year. Misurata and Benghazi (the second- and third-largest cities) were devastated in the conflict and entire areas will need to be rebuilt. In the near term, we are also seeing demand for insurance and project finance.
Mark: Besides the obvious oil and resource opportunities, what else looks intriguing?
Kevin: We are already working in Libya, and have signed several agreements to form new ventures there. Our ongoing projects are in exports, shipping, oilfield services, hospitality, and security. We are also identifying local companies who are exceptionally well-positioned to benefit from the country’s new direction. Many company owners have approached us and asked for help in identifying investors and joint venture partners that will help them to improve their position in anticipation of future growth. We are listening to everything at present, but we prefer to work with local partners with a successful track record.
Later this year we hope to begin capital-raising efforts for a private placements fund that will focus on the broader Maghreb region (Morocco, Tunisia, and Algeria) with particular focus on Libya. We are in early stages now and have already received positive indications from our institutional contacts.
Mark: Of course that’s something we’ll be keeping in close contact with you on for our membership service. Early-stage seed rounds in frontier market private placements is what we focus on, it’s squarely in our wheelhouse.
What about transparency, corruption and the state of the legal system right now?
Kevin: Libya’s legal system is its most significant liability at present. Over the past forty-two years, Qaddafi implemented thousands of arbitrary and capricious laws that made it nearly impossible to build or retain wealth. Property rights were routinely flouted and expropriation was common. Corruption was (and remains) rampant. Any new government will need time to stabilize and exert its authority before a concerted effort to rewrite laws and regulations can begin.
The country will also need to build and maintain a banking and financial system. As we have seen in Iraq, local companies need access to project finance before major reconstruction can begin. International wire transfers are very difficult at the moment, and the country still maintains capital controls through limitations on the amount of withdrawals its citizens can make from their bank accounts. We are seeing signs of relaxation with these policies but further improvements are needed.
We are well-connected within the Libyan political structure, and emphasize that the establishment of an effective national government is the critical step toward creating a successful investment environment. Property rights and corporate governance laws must be rewritten; stability must be confirmed and enforced. Therefore we are monitoring the electoral process closely and will continue to do so.
Mark: Kevin it looks like Libya is about as early stage as you can get in a frontier market. The ashes are still smoldering.
As I pointed out earlier, you wasted no time getting yourself over there, but most investors are likely a bit afraid at this point and will likely wait for things to calm down a bit. The only problem with that strategy is that the “easy” money will be made by the first movers.
Kevin: Well look, the country is in the very early stages of its rebuilding process and much uncertainty remains. Some might think it wise to stand back for another year or two for necessary improvements to occur before entering the country, as there are many factors that could impede further development. That’s not necessarily a bad idea.
We are here now because, as you correctly point out, if we wait for the optimal conditions to evolve, then the opportunity for significant gains will have come and gone. Having previously worked in Russia, I see many parallels to the post-Soviet development in the ’90s. The transition to market economy was non-linear, and frequently ugly, but firms like Renaissance Capital and Firebird, who entered with conviction in the early 1990s and effectively managed their risk, achieved amazing growth.
Mark: Yep, again, we saw this in Kazakhstan and are seeing it in Mongolia.
Kevin: Exactly. We remain optimistic for Libya’s prospects despite the current difficulties. I want to reiterate that you should not believe everything you see or read in mass media outlets – I feel safer walking around Tripoli or Misurata than I do in many Washington DC neighborhoods. People are warm and accommodating, and there is a pervasive sense of optimism that you sense when you arrive. We intend to be here for the foreseeable future.
Mark: Thanks Kevin. We’ll be in close touch, as we don’t want to miss these opportunities either.
Kevin’s doing what successful frontier markets investors do… he’s got his boots on the ground and is actively seeking out opportunities… the same kind of opportunities we’re scouting for our new service, by the way.
Chris and I get emails almost daily asking us who to talk to, where to go and what to do to get involved in these exciting, potentially life-changing markets.
If you’re an accredited investor interested in frontier markets, click here to let us know, and we’ll tell you about it.
“The message they sent us very loud and clear is that Libya is open for business.” – USLBA Executive Director Chuck Dittrich